Retirement accounts growing, but not fast enough

Investing was once perceived to be a practice limited to the wealthy or, in today's terms, the 1-percenters. However, a closer examinations shows investors could more apply described as the 50-percenters.

“Over half of Americans, either personally or jointly with a spouse, report that they own a stock directly or through investment vehicles, like a self-directed 401(k) or IRA,” said Mary Jo White, chair of the Securities and Exchange Commission in a recent speech to the Consumer Federation of America.

“That means the majority of American households today are directly connected to the securities market. In addition, there are millions of other households that are counting on a pension or another source of income that is itself dependent on the securities market.”

White acknowledged the vast majority — 93 percent of mutual fund investors — are saving for retirement as their top priority. The Investment Company Institute calculates Americans have accumulated $20.9 trillion in assets specifically earmarked for retirement.

The ICI report, “Our Strong Retirement System: An American Success Story,” shows retirement assets have grown faster than inflation since 1975, when the average retirement assets per household were $27,300 in constant, inflation-adjusted dollars. As of the end of 2013, assets stood at $167,800, more than six times higher than 1975.

But not all the retirement news is encouraging. A new Gallup survey finds 48 percent of Americans say they will rely on a 401(k) account as their major source of retirement income. That compares to 54 percent in 2008.

Instead, most households identify Social Security as a major source of retirement income. Only 31 percent of people now retired rely on Social Security as their primary source for income. Yet 55 percent of people now working anticipate they will need Social Security to make ends meet.

“This may reflect the higher volatility in the stock and housing markets, as fewer Americans felt comfortable trusting their retirement income to those sources and instead considered Social Security the safer option,” according to the Gallup report.

Safer, for sure, but not a very good hedge against the long-term ravages of inflation. Annual cost of living adjustments for Social Security benefits over the past five years have averaged 1.3 percent, with no increase at all in 2009 and 2010.

Bottom line: The question for those already in retirement and those planning for the future is how to cope with inflation. While the cost of living may be modest right now, it will rear its head sometime.

And with interest rates on fixed-income securities and time certificates barely providing any after-tax and after inflation returns, the choice of investments like dividend-paying stocks, real estate investment trusts or other products carrying some risk may have to be incorporated in a portfolio.

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User Response

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carly6:47amMay 8, 2014

The key is to start saving/investing early in life, be consistent, take advantage of any employer matching plan, max out contributions when possible, eliminate debt, avoid risks with your nest egg and plan for multiple streams of income once retired (social security, pensions, dividends, part time work, etc.). There is a great deal of information about retirement available on the web. I use several sites including the site Retirement And Good Living which provides information on finances, health, retirement locations, part time work and also has a great blog of guest posts about a variety of retirement topics.

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